Current Affairs Magazine

Discord simmering in strategic waters

As conflicting claims to territory in the South China Sea cause tensions between the various players, Darren Mackiecalls on the international community to monitor an issue that has global, not just regional, importance.

In a globalised world the infrastructure that supports this globalisation, such as trade routes and energy deposits, becomes fraught with tensions and potential conflict. Nowhere outside the Middle East is this seen more than in the South China Sea (SCS). With its rich fishing grounds, potential oil and gas reserves and confluence of major global shipping lanes, the region is strategically important not just at a regional level but globally—at least as far as world trade and energy security is concerned. Not only is the SCS bordered by some of the fastest developing economies in the world, it is also the confluence of many of the busiest global shipping lanes, which is raising concerns about the freedom of navigation when put against the growing tensions in the area.

Geographically the SCS is bordered by China, Malaysia, Brunei, Singapore, Vietnam, the Philippines and Taiwan. All of them make different and overlapping claims on the territorial waters and islands of the SCS, and all of them except China are asking for international arbitration to settle these claims. The UN has tried to come up with a solution for disputes over territorial waters with the United Nations Convention on the Law of the Sea (UNCLOS). This designates Exclusive Economic Zones (EEZs) for all countries, which is a 200-nautical-mile zone using the shoreline of each country as a baseline. There are also designated international shipping lanes for military and commercial ships. The UNCLOS also applies to the skies over the EEZs and the International Shipping Lanes. Although China has signed up to this, as have all of the ASEAN nations, it has also registered its own claims known as the ‘9 dash line’, which effectively means it claims almost all of the SCS as its own. A further difficulty with the UNCLOS is that in as much as it applies to the SCS, the EEZs often overlap which further fuels the existing territorial disputes.

Territorial Claims in the South China Sea

Country

Islands Claimed

Brunei

A Southern Reef of the Spratly Islands.

Malaysia

3 Islands in the Spratlys.

Philippines

8 Islands in the Spratlys; Large area of the South China Sea.

Vietnam, China, Taiwan

Large portions of the South China Sea; All of the Spratly; All of the Spratly and Paracel Island Groups.

All the economies of the SCS have undergone unprecedented growth in the last 20 years, none more so than China,

which has also brought with it growth in naval capabilities, expansion in population that is causing greater demands on food (namely fish) and energy consumption. With greater capability at sea to police the areas claimed by each nation, along with large merchant fishing fleets, the potential for even small-scale conflict has become commonplace. Over the past few decades fishermen were largely ignored in the geopolitics of the region. But as fish makes up approximately 22 per cent of the protein intake in South East Asian diets, the demands on fishing in the SCS have become such that a study by the University of British Colombia in 2006 showed that 30 per cent of all fish stocks in China’s EEZ are collapsed and a further 20 per cent are over-exploited. This pushes China’s fishing fleets, as well as other claimant countries to the SCS, further into the SCS in search of catches. The end result is that fishing has now become a politically sensitive issue in which the International Relations and Security Network (ISN) noted in 2013 that fishermen have largely become pawns in their home nations’ maritime policies. Even quite benign building projects such as constructing shelters for protection during typhoons are now viewed with suspicion, though not without some justification. The same report cited a case in 1995 when China occupied Mischief Reef in the Philippines’ Kalayaan Island group, which is inside the Philippines’ EEZ. Initially the project was to build storm shelters for fishermen but by 1998 it had become a military garrison.

Now domestic laws are being passed to back up claims to the economic exploitation of the SCS and fishermen are receiving military back-up from their home countries under pressure from their domestic population. So a naval arms race is underway in the SCS to build more and bigger patrol vessels. Domestic pressure on each government also means that fishermen who are caught straying into another nation’s EEZ are likely to be caught, their equipment confiscated and it makes it difficult to release the offenders without charge.

Very recently, Indonesia (which is not involved in the disputes) arrested eight Chinese fishermen caught fishing off the Natuna Islands at the very Southern edge of the SCS. The Guardian reported on 24 March that the Chinese fishing vessel itself was aided by the Chinese coast guard, who collided with the vessel as the Indonesian patrol ship towed it away so that it could escape. China is claiming that the vessel was not in Indonesian waters though the Indonesian Foreign Minister, Retno Marsudi, protested that China had ‘violated our sovereignty’. The fact of a Chinese Coast Guard ship being so far south in the SCS shows just how much of the waters China believes it should own, and that it is not willing to compromise over what it sees as its own territory. This incident also shows how far ahead of the rest of South-East Asian nations China is in terms of building patrol vessels that can be called in to help its fishermen at sea wherever they are in the SCS. But most worrying is the way that fishing is now politicised and used as a weapon to claim sovereignty over disputed waters.

China has sought to further exert its claims over the SCS and within its ‘9 dash line’ by enforcing a summer fishing ban, and has done every year since 1999, according to a report by Global Security—the aim being to allow the ‘rehabilitation of marine stocks’. The new development (as of January 1 2014) is that all foreign fishing vessels must ask permission from Chinese Authorities to enter more than half of the SCS. Vietnamese fishermen have said that they would ignore the ban in their own waters for which scores have been arrested and their vessels impounded by China. The Philippines said that they too would ignore the ban, but followed this by implementing their own ban on fishing to allow their own stocks to recover and help de-escalate tensions. The same report for Global Security noted that the US has commented (but little else) that imposing a ban in disputed territory and passing legislation claiming disputed waters ‘would certainly be of concern to us’.

The simple fact is that this situation is not sustainable in the long term. Increased clashes in the SCS, albeit on a small scale, are leading to heightened tensions among all the neighbours and a naval arms race that at worst could disrupt global trade. Besides, the migratory nature of fish requires a regional settlement on catch limits and prohibition on certain fishing methods (such as dynamite or cyanide fishing) that can be jointly enforced needs to be put in place with the agreement and consent of all concerned. As for the fishermen themselves, they have been migrating around the SCS for centuries before the national tensions surfaced.

The fishermen may well have found themselves as the front line, or rather the visible part of the territorial conflict that is more about what lies under the seabed rather than the fish swimming above it. All the countries bordering the SCS have rapidly expanding economies, which is putting pressure on their energy needs. A good example here is China. China’s current oil reserves account for 1.1 per cent of global reserves but China consumes 10 per cent global oil production and 20 per cent of all energy consumed on the planet. According to the Penang institute in 2013, China is also by far the largest producer of oil and natural gas in the South-East Asia region at 4.18 million barrels a day, compared to the second highest producer, Indonesia, at 882,000 barrels a day and Malaysia at 657,000 barrels. Around the islands and reefs of the SCS there is an estimated 11 billion barrels of oil but perhaps more important is the 900 trillion cubic feet of natural gas. Robert Kaplan has said in his book Asia’s Cauldron that China estimates that the SCS could yet yield up to 130 billion barrels of oil, which, if true, makes it the second largest concentration of oil in the world, though these figures are hotly disputed and certainly far from proven. Despite this, the China National Offshore Oil Corporation has invested $US20 billion in the belief that these reserves do exist. If true, then China would go a long way to alleviating its energy consumption needs.

Country

Oil in Billions of Barrels

Malaysia

5

Vietnam

3

Brunei

1.5

China

1.3

Despite the potentially huge reserves of oil and gas in the SCS, The Wall Street Journal has reported that many major international oil and gas companies are avoiding the SCS altogether because of the ongoing disputes, citing the case of Chevron in 2006, who were awarded exploration rights with Petronas (Malaysia’s state-owned oil company) to explore waters east of Vietnam. China responded by issuing warnings that doing so would be a violation of their sovereignty and Chevron pulled out of the deal in 2007 over concerns about the ongoing dispute. That was also despite the Vietnamese government offering naval protection to the company. Similarly, Harvest Natural Resources Inc. was to start exploration with China until Vietnam offered another company exploration rights over the same block of sea, leading Harvest Natural Resources Inc. to withdraw, saying that it was divesting away from Chinese Assets. Some companies such as ExxonMobil have continued exploring the SCS, believing that the reward is worth the risk, though it is becoming apparent that the disputed territories need to be resolved for any real progress to be made in extracting oil and gas from the SCS. It is also notable that the vast majority of the reserves are in undisputed waters so it is perhaps more probable that the aggressive moves by China in asserting its claims are to do with its own estimates of the reserves around the reefs and islands that it lays claim to than anything else.

The SCS is also a major shipping lane for waterborne oil and gas. China currently imports 5.5 million barrels of waterborne oil per day which is more than half of China’s daily oil consumption. Some estimates suggest that as much as 80 per cent of this passes through the SCS. The US Energy Information Administration also gives figures for the oil and gas that enters the SCS to move onto other South East Asian destinations, including Japan and South Korea. Approximately 1.4 million barrels a day goes to Singapore and Malaysia where it is refined into other petroleum products and then shipped again through the SCS to other regional ports as exports. Then there is intraregional trade to consider, from Australian, South Korean, Malaysian and Indonesian crude oil exports passing through the region to Singapore, South Korea, China and Japan and some of the smaller East Asian economies. As well as oil, the SCS sees the transit of more than half of Liquid Natural Gas (LNG) trade globally at 6 trillion cubic feet per year. More than half continues on to Japan, with the rest being distributed evenly around the economies bordering the SCS particularly China.

The East Asian economies also rely heavily on the iron ore and coal that are imported via the SCS to fuel their export-driven economies. Money Morning reported in 2015 that dry tonnage through the SCS to the local economies was second only to the liquid (oil and gas) tonnage. Of course the rest of the world buys the products these raw materials are turned into, which in turn passes through the SCS to other shipping lanes to reach the ultimate destination. So the SCS disputes matter globally as well as regionally. Brian Kalman reported in Global Research that over $US5 trillion of global trade passes through the SCS each year. With 90 per cent of world trade still transported by sea and 30 per cent of that going through the SCS, concerns over freedom of navigation have risen and as China presses its claims around the SCS, the US has begun sailing ships and flying through air space designated as international shipping lanes by the UNCLOS to reinforce freedom of navigation in the SCS.

Perhaps ironically, it is this reliance on the SCS as an artery of imports of material and energy that has prevented the almost routine clashes between navies and fishermen spilling over from heated rhetoric to a shooting war. China cannot afford to disrupt the 80 per cent of its energy needs satisfied through SCS imports and the other regional economies cannot cut off their own exports or imports. But

for the SCS to realise its economic potential, a resolution must be found.

China favours bilateral negotiation and agreement, whereas the ASEAN nations favour international arbitration and have begun listing cases at The Hague. China for its part has said it will ignore any judgements. India has offered support to international arbitration and the Indian Ambassador to the Philippines has said that all nations must respect international law. The US has a large part to play in finding any resolution, (though some question whether or not it wants to, beyond ensuring Freedom of Navigation) due to the reliance of the ASEAN countries on the US for military and diplomatic muscle. The European Union could also have a role to play in the SCS disputes as it does have some experience, particularly in drawing up a Common Fisheries Policy and the management of aquatic resources across vast swathes of ocean and among multiple states. However, any negotiations that the EU was to help with would require the endorsement and participation of China, which has thus far been denied.

The SCS is an issue that is gaining little international attention. Perhaps because the rest of the world sees it as a local dispute and with no disruption to shipping so far there is little reason to be concerned. However, as the area is becoming militarised around the SCS islands, with clashes between navies and fishermen becoming more routine, the wider world must begin to put pressure on ASEAN and China to resolve this issue to ensure that there will not be a shooting war and disruption to the arteries of global trade.